It appears that the UK wants to spend their way out of a recession. The US has a plan too, as does New Zealand, Europe, and Australia. Governments all across the world want to spend their way out of a recession – however, there is only three ways they can get the money together.
- Increase taxes – knocking out any stimulus anyways,
- Print money.
Assume that monetary policy will act to constrain any excessive “money printing” that will be going on this leaves us with borrowing.
If all the governments in the world want to increase their borrowing, this will increase demand for global credit, which will push up interest rates – won’t it? This will lead to an increase in private savings, and will just move around the allocation of resources rather than creating wealth.
There is no free lunch when it comes to “getting out of a recession” – give me the “market failure” we are facing, then we can talk about improving outcomes!